Gastón Illanes, Northwestern University

Paper: Information Frictions in Mortgage Refinancing

Abstract: Households often fail to refinance mortgages, foregoing substantial reductions in interest payments. We implement a large-scale experiment on the mortgage borrowers in a Chilean bank to study whether information interventions affect refinancing behavior. We randomly assign borrowers to receive treatments that target distinct information frictions, and track their search and refinancing behavior over time. We find that the most effective intervention—giving information about gains from refinancing and details about how to refinance—increases search for refinancing offers by 20%, with significantly larger effects for those with the largest gains from refinancing. We develop and estimate an equilibrium model of refinancing to evaluate alternative policies that affect refinancing frictions, as well as its implications for market power and the passthrough of monetary policy.